New Delhi, Jan. 23: The Tatas and the government are squaring off for another battle at Videsh Sanchar Nigam — the second spat in less than a year since Tata-owned Panatone Finvest took control of the long distance telephony major.

This time the row is over the formation of a company to take over the 773.13 acres land that was declared surplus prior to the selloff.

In February 2002, the government sold a 25 per cent stake in VSNL to the Tatas for Rs 1,439 crore. The understanding at that time was that the surplus land would not form part of the deal and it would be spun off into a separate company.

The nub of the present dispute is over the valuation of the land. The government has appointed Housing and Urban Development Corporation (Hudco) to undertake the valuation of the surplus land of VSNL that remained with the government after it was divested to the Tatas.

However, Tata group chairman Ratan Tata has demanded that the executive secretary on the VSNL board should have a free hand to decide on the valuation of the land since it belongs to VSNL.

The row was just waiting to happen because of the manner in which the government has mishandled the hive-off of the land that was declared surplus long before the selloff.

The sale agreement was equivocal on the status of the surplus land. One clause in the agreement said categorically that the strategic partner “shall do or cause to be done all necessary actions for demerger of the land into the resulting company ... the strategic partner shall transfer all such shares in the resulting company (to the government) as it may acquire as a consequence of the transaction.”

However, another clause in the agreement weakened the whole case by stating, “If for any reason the resulting company is not created and VSNL sells or transfers the land or develops the land, the strategic sale shall pay to the government an amount equivalent to 25 per cent of the benefit accruing to the company.”

The fresh battle will again call for the intervention of communications minister Pramod Mahajan. In May last year, the VSNL board had cleared a proposal to take Rs 1,200 crore out of the reserves of cash-rich VSNL and invest it in Tata Teleservices. Mahajan forced the Tatas to back down and, under an amicable agreement reached last September, it was decided that only Rs 800 crore would be funnelled into the Tata company over a four-year period.

Ratan Tata was of the opinion that the valuation of the land should be done just before the company is formed so that the variations are at a minimum. However, the communications ministry has pointed out that since the land cannot be used for commercial purposes, the valuation needs to be done based on the institutional rate.

While the Tatas wanted the valuation to be done by their agency, the government has decided to hand over the job to Hudco, which comes under the ministry of urban development and poverty alleviation. “It makes financial sense since Hudco will charge a fee in accordance with the government norms that is below the market rates,” sources in the communications ministry said.

The demerger of the surplus land is to be undertaken by the new company to be created by a committee consisting of two members each from VSNL, department of telecommunications and from the strategic partner — Panatone Finvest Ltd.

“Ratan Tata was of the opinion that the committee should be below the board and also did not agree that any decision of the committee should be in concurrence with the views of Rakesh Kumar, the government nominee on the VSNL Board,” states a note prepared by the Telecom Commission.